Question

A market is described by the following supply-and-demand curves:QS = 2PQD = 300−PSuppose the government imposes a price ceiling of $90. This price ceiling is (Binding/non-binding) and the market price will be $ ______. The quantity supplied will be ______, and the quantity demanded will be ______. Therefore, a price ceiling of $90 will result in (Shortage/ a surplus/ neither a shortage nor surplus).

Answer 1

Answer:

Binding

$100

200

200

Shortage

Explanation:

A price ceiling is when the government or an agency of the government sets the maximum price for a good.

A price ceiling is binding when the price ceiling is below the equilibrium price.

To find the equilibrium price, equate qs to qd because at equilibrium, quantity supplied is equal to quantity demanded.

2P = 300 - P

3P = 300

P = 100

Equilibrium price is $100.

$100 > $90. Therefore, price ceiling is binding.

To find quantity supplied, plug in the value of P into the equation for quantity supplied

QS = 2(100) = 200

To find quantity demanded, plug in the value of P into the equation for quantity demanded

QD = 300 - 100 = 200

when price is below equilibrium price, quantity demanded increases while the quantity supplied decreases. This leads to a shortage.

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